With more Bitcoin exchanges requiring KYC practices, keeping your bitcoin moves anonymous can be difficult- but not impossible
Because of governmental legislation, liability, or just because an exchange wants information on their users- it’s pretty likely that any bitcoin exchange you use will require some personal information from you. There are exceptions to every rule, with peer-to-peer networks offering fewer guarantees, but anonymous transactions. Bitcoin ATMs can also provide users the ability to keep their personal finances outside of the public eye.
However, it’s unlikely that any of these alternate routes of bitcoin trading will be used by day traders. Which is how a number of users make their money, or store value with bitcoin as an asset. While supplying an exchange with your personal information doesn’t necessarily automatically equate to your personal finances being open to anyone who cares to look, it does increase the likelihood that the bitcoin you own and use can easily be traced back to your identity. Which, on top of being a genuine security risk, also belies the principles that bitcoin was built on. Which is where bitcoin tumblers step in, according to Best Bitcoin Tumbler, a website that offers all information about bitcoin mixers and bitcoin tumblers.
Why Use an Exchange Anyway
Even if you never find yourself in need of a centralized crypto exchange personally, chances are your coins will have passed through them at some point. Which means that those coins are essentially “marked”. They have a full history along with the blockchain, and should any of those coins be of interest to analytics companies, they will follow them to your wallet as well.
Past this, centralized exchanges not only offer users a number of incentives and benefits to using them, but they also offer quick transfers and near-instant liquidity. Making them the platform of choice for anyone who needs to trade bitcoin. Because of both the inherent volatility of the market and the relatively slow transaction rate (specifically when markets are busy), exchanges offer users a quick and effective way to make trades instantly, and not have to wait days to see profits, as they might on peer-to-peer exchanges.
How Bitcoin Tumblers Work
The only way to sever both either the ties your coins themselves have to the blockchain, or the ties your coins have to your own identity, is to use bitcoin tumblers. Use them well, and use them often.
Bitcoin tumblers cut ties between coins and their specific use history by obfuscating an easily traced transactional history throughout the bitcoin ledger. Each bitcoin in existence (or piece of bitcoin) is given a specific line of code that authenticates it as bitcoin. Each wallet is given an address that authenticates it as a wallet. These codes are then used to create transaction-specific mathematical algorithms.
These algorithms are solved by mining computers. Once proof of the algorithm is found, the transaction is deemed as valid and placed into the blockchain. Blockchain is what’s called a publicly distributed ledger. This means that anyone who’s part of the network can look at the blockchain and see these “transactions”. This is what keeps bitcoin safe, decentralized, and makes it difficult to fake transactions. So you can see how the same value of bitcoin could easily be traced throughout its transactional history, and also every user wallet that’s ever handled that bitcoin. If you’ve used personal details to snag that wallet, then that value of bitcoin can be traced to you personally.
Bitcoin tumblers help prevent this by creating hundreds of microtransactions with multiple sources of bitcoin. Which makes it increasingly difficult to figure out which bitcoin came from where. Or went to where. Or where it might be now.
How to Use Bitcoin Tumblers for Personal Security
By using coins from your personal wallet, coins that belong to the tumbler itself, coins that belong to other depositors, and freshly mined coins with no real transactional history of their own, and mixing them all together hundreds of times over- you get coins that are dissevered from you or the other people they have belonged to.
This is the best way to keep your coins separate from your identity, even if you got them from an exchange that has strict KYC protocols attached to their wallets. So- say you’ve got your coins sitting in a wallet, housed by one of the big centralized exchanges. The exchange required your name, address, and another of other personally identifying details in order to start your account.
You’ve made a decent amount of money on these coins and you’re now looking to throw them into cold storage, holding onto your asset until you can make more money, or you need them for another reason. Ultimately, instant liquidity isn’t on your radar at the moment. So, before you pop them into your cold storage wallet (a private, offline wallet that has no ties to your personal identity), you’ll want to run them through a bitcoin tumbler.
This helps to prevent analytics from guessing at just how many coins you’re sitting on (which has historically put users at risk for scams, hacks, and more). It also severs your identity from those coins. Keeping not only your coin safe, but also you.
Arnold Webb received a Masters Degree in Computer Science from Harvard University. Arnold currently is a full-time researcher and trader in the cryptocurrency industry. Arnold contributes content to CryptoCelebrities.co, The Bitcoin Magazine and several other publications.